The audience for late-night talk shows has splintered and shrunk as options -- rivals on cable, and 24-hour news and celebrity gossip on TV and the Internet -- proliferate.

Want to buy a commercial to welcome Jay Leno back as host of NBC's "The Tonight Show"? It'll run you only about $35,000. If that sounds like a lot, a few years ago that ad time would have gone for $50,000. For all the hype about the futures of Leno and Conan O'Brien, the era when a comedian could be crowned the undisputed "king of late night" is, like the price of a 30-second spot in one of their shows, on the ebb -- and with it, the economics underpinning late-night TV. The world that O'Brien entered when he began his first late-night show 16 years ago is radically different from the one that will greet him when he returns to the air. Those changes are likely to shape everything from where O'Brien lands to how much he will be paid and the format of the show -- band or no band? -- he will host. Night owls and insomniacs, who not long ago had only a handful of talk shows from which to choose, now have dozens to flip through. And those programs, which once could count on a stable audience, are growing vulnerable as viewers with digital video recorders watch on their own timetables -- or simply catch the good snippets on Hulu or YouTube.

"The standard late-night talk show format is not as relevant to the viewing audience in 2010 as it was 10 years ago," said Jon Swallen, senior vice president for research at TNS Media Intelligence, an industry consulting firm.

"When everybody is famous for 15 minutes, it is no longer worth 15 minutes of a viewer's time to tune in and see it."

Audience erosion

Indeed, as late-night shows like those hosted by Jon Stewart or Stephen Colbert sprouted on cable, viewers have gradually tuned out the networks' counterparts. The combined audience for NBC's, ABC's and CBS' late-night programs has fallen 20% from five years ago, according to Nielsen Co.

More troubling: The group of viewers 18 to 49 years old -- the spend-happy cohort that sponsors most want to reach -- has plunged 36%.

Advertisers, not surprisingly, are fleeing too.

In 2007, the shows featuring Leno, O'Brien, David Letterman and the rest of the late-night network TV brigade commanded about $720 million in advertising, TNS estimates. Through the first nine months of 2009 they pulled in only $500 million, on pace to fall significantly short of two years earlier.

Although some of the decline in ad revenue can be blamed on the economy, much of it is due to fundamental changes in the media landscape.

A 24-hour news cycle and the proliferation of celebrity-obsessed websites like TMZ and cable channels like E! have siphoned much of the fuel that powered late-night talk shows. Viewers don't have to wait until late night for a comedian's monologue and riff on the news or unctuous interview with a movie star, because now the media mill grinds through topical subjects all day long.

As a business, late-night talk shows face the fast-rising costs and audience fragmentation that have eroded prime time, said Marc Graboff, chairman of NBC Entertainment.

"You have to control your costs to make any kind of profit," he said. "That's the big difference between now and five years ago."

Spending money

One of NBC's arguments in moving Leno into prime time was that, although his show would garner fewer viewers than a drama, its lower production costs would lead to higher profits.

Letterman and Leno each pull down more than $30 million annually, said people familiar with the productions, and O'Brien earned $12 million. ABC's Jimmy Kimmel makes $8 million to $10 million, these people said.

CBS' "Late Show With David Letterman" and NBC's "The Tonight Show" each cost $1.5 million to $2.5 million a week to produce. Those costs include a producer who can pull down as much as $300,000 annually and writers who earn $3,500 to $10,000 a week, depending on seniority. A talent booker -- responsible for lining up celebrity guests -- gets $3,000 to $6,000 a week.

And, of course, any late-night talk show worthy of the name has its own band -- which can run the network $1 million annually. Songs, too, cost a pretty penny: Every time Paul Shaffer on "Late Show" strikes up a cover of "Fortunate Son" or "Brown Sugar," the show pays $1,500 to $3,000 in rights fees. Even a week's worth of reruns still runs into the six figures.

Then there are sundry expenses like flying guests in and putting them up in a hotel; providing car service; and keeping the "green room," where people wait before they walk out on stage, stocked with catered food and drink.

So perhaps it shouldn't come as a surprise that, according to NBC insiders, O'Brien's "Tonight Show" was on track to lose $20 million this season -- a contention O'Brien's representatives dispute.